Tata Dividend Yield Fund NFO Review
Tata has launched Dividend Yield Fund that opened for subscription on 3rd May, 2021. Tata Dividend Yield Fund invests predominantly in dividend yielding stocks and aims to provide capital appreciation and regular income. Dividend Yield Funds have provided 3% to 16% annualised returns in the last 5 years. Should you invest in the Tata Dividend Yield Fund NFO? What are the risk factors an investor should consider before investing in such funds?
What are Dividend Yield Funds?
As the name indicates, dividend yield funds invest in dividend yielding stocks. Their main motto is to provide capital appreciation by providing regular income.
NFO issue details of Tata Dividend Yield Fund NFO
Tata Dividend Yield Fund NFO would open for subscription on Monday, 3rd May, 2021 and closes on Monday, 17th Monday, 2021. Here are the NFO issue details.
|Scheme reopens for continuous purchase/sale||Within 5 days after allotment|
|Minimum Lumpsum||Rs 5,000|
|Minimum SIP||Rs 1,000 for 6 months|
|NAV of the fund||Rs 10 during NFO period|
|Exit Load||For < 1 year – For 12% of investment: Nil
For remaining investment: 1%
For > 1 year – Nil
|Risk||Very High Risk|
|Max expense Ratio (TER)||2.25%|
|Benchmark||Nifty Dividend Opportunities 50 TRI|
What is the investment objective of Tata Dividend Yield Fund?
The investment objective is to provide capital appreciation and/or dividend distribution by investing predominantly in a well-diversified portfolio of equity and equity related instruments of dividend yielding companies.
However, there can be no assurance that the investment objective of the scheme will be achieved.
What is the allocation pattern in this mutual fund scheme?
Here is the allocation pattern of this fund.
|Type of instruments||Min %||Max %||Risk Profile|
|Equity and equity related instruments of Dividend Yielding Companies||65%||100%||High|
|Other Equity & Equity related Instruments||0%||35%||High|
|Debt and Money Market instruments||0%||35%||Low to Medium|
|Units issued by REITs & InvITs||0%||10%||Medium to High|
Why should you invest in Tata Dividend Yield Fund NFO?
Here are a few reasons to invest in such mutual fund schemes.
1) This fund invests in companies having a record of dividend payments. Consistent dividend paying companies can reward investors with regular income.
2) The level of risk in such funds is relatively low as they invest majorly in large-cap stocks that has proven track record of paying dividends.
Major risk factors you should consider before investing in such funds
One should consider some of these risk factors / negative factors before investing.
1) Dividend yield fund invests in dividend yielding stocks. While they might provide good dividends, the price appreciation of such stocks could be at a lower rate compared to other stocks.
2) It invests in debt instruments to the tune of 35% where there is interest rate risk, liquidity risk and default risks.
3) It invests in InvITs and REITs up to 10%, which are high risk.
4) Investors should read the NFO prospectus for complete risk factors.
Performance of existing Dividend Yield Mutual Funds
Let us look at the performance of existing dividend yield funds in India. Returns more than 1 year are annualised. What you see in Table-1 (annualised returns) Vs Table-2 (simple yearly returns) would be completely different. These dividend yield funds would keep delivering good returns every 3 years (e.g. 2014, 2017 and then in 2020).
|Fund Name||1 Year||3 Years||5 Years|
|Principal Dividend Yield Fund||49.1%||10.0%||16.5%|
|Templeton India Equity Income Fund||73.8%||10.1%||14.9%|
|UTI Dividend Yield Fund||49.5%||9.6%||13.2%|
|ICICI Prudential Dividend Yield Equity Fund||60.7%||3.4%||11.3%|
|Aditya Birla Sun Life Dividend Yield Fund||49.4%||5.0%||9.5%|
Should you invest in Tata Dividend Yield Fund NFO?
Tata Dividend Yield Fund is the new fund offer that invests in dividend yielding stocks. Such MFs pick up stocks majorly from the blue chip category which are considered relatively better investment options. If you observe, these funds keep delivering good returns at every 3rd year with underperformance in 1st and 2nd year. This category of funds has mixed performance and generated 3% to 16% annualised returns in the last 5 years. I would recommend avoiding such funds as of now. Alternatively, one can invest in largecap mutual funds or flexicap mutual funds that can deliver better returns.
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